Investor Lawyers Blog

Aegis Capital Fined $950K by FINRA Over Penny Stock Scheme

Published on: August 4, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Aegis Capital Corp. must pay $950,000 to resolve allegations that it engaged in the improper sales of billions of shares of unregistered penny stock. The securities case was brought by the Financial Industry Regulatory Authority last August. According to the self-regulatory organization, the New York-based brokerage firm facilitated a penny stock scheme that resulted in $24.5 million in customer profits and $1.1 million in commissions. Aegis is also accused of supervisory lapses related to anti-money laundering.

The SRO said that from April 2009 to June 2011 the brokerage firm liquidated about 3.9 billion shares of five penny stocks that were unregistered even though they should have been registered with the Securities and Exchange Commission. Also, FINRA contends, Aegis and compliance officers disregarded red flags related to the transactions.

For example, an ex-securities broker who was barred from the industry was the one who referred the customers involved to Aegis. This broker controlled the activity in a number of accounts at the firm. Without looking further into this questionable scenario, Aegis sold the unregistered shares.
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Former Standard & Poor Executive’s Case Against the SEC Over In-House Judge Can Proceed

Published on: August 4, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A U.S. district court judge says that Barbara Duka’s lawsuit against the Securities and Exchange Commission can move forward. Duka used to be the head of Standard & Poor’s commercial mortgage-backed securities group. She is challenging the regulator’s decision to appoint an administrative law judge to preside over its securities fraud case against her. Duka wants her case heard in federal court.

The SEC claims that the former S & P executive hid the way the credit ratings agency had relaxed its requirements for calculating certain commercial mortgages. Their lawsuit against her came just as S & P consented to pay $77 million to resolve related charges by the regulator and the attorneys general of Massachusetts and New York.

Issuers and investors were not happy when in 2011 S & P withdrew a preliminary rating on a $1.5 billion security. Following a partial restructuring, that deal later went to market. The SEC would go on to launch probes into why the rating was pulled, and also into six other deals that were rated that year. The SEC’s own internal probe uncovered inconsistencies in the methodologies for the way S & P rated existing and new deals.

Voya Financial Advisors Restricts Variable Annuities Sales

Published on: August 3, 2015 | by Shepherd Smith Edwards & Kantas, LLP

In the wake of regulator scrutiny, Voya Financial Advisors is once again placing restrictions on its sale of variable annuities. The regulators are wondering whether the products are appropriate for investors who are saving for retirement. Variable annuities have been getting a lot attention from regulators from FINRA, the U.S Securities and Exchange Commission, and the Labor Department, which oversees retirement benefit plans that provide tax benefits and are sponsored by employers.

InvestmentNews reports that according to internal documents, Voya said that it would no longer approve the sale of C share variable annuity contracts if the contract has add-ons that cost extra. It was just last month that the firm placed the same restriction on variable annuity contracts involving L shares.

Zoya brokers will now have to provide clients with an analysis, prepared by Morningstar Inc., of each annuity contract’s cost in dollars. They also will have to get a client’s signature before selling the new annuity.
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SEC Cases: Pennsylvania Lawyer is Charged with Insider Trading, San Diego Investment Adviser is Accused of Stealing Client Funds, and New York Man is Arrested for Fraud

Published on: August 2, 2015 | by Shepherd Smith Edwards & Kantas, LLP

SEC Accuses Pennsylvania Attorney of Insider Trading
The U.S. Securities and Exchange Commission is charging Herbert K. Sudfeld with insider trading ahead of the announcement that Nationwide Mutual Insurance Company and Harleysville were about to merge in a $760 million deal. The regulator contends that the Pennsylvania attorney illegally traded on the information, which caused Harleysville’s stock price to rise 87% when the announcement went public.

Sudfeld, who was a real estate partner at a law firm that gave Harleysville counsel on the merger, learned about the impending deal from a conversation involving a lawyer and the legal assistant they shared. That attorney was involved in the deal.

Sudfeld is accused of stealing the information and buying Harleysville stock. After the merger was announced, he purportedly sold the share he had bought, making about $79,000 in illegal profits. Prosecutors in Pennsylvania have filed a parallel criminal action against him.

San Diego Investment Adviser Accused of Stealing Client Money, Running Ponzi Scam
Paul Lee Moore and his now defunct investment advisory firm are charged with bilking client funds and operating a Ponzi scheme. According to the complaint filed by the SEC, Moore and Coast Capital Management raised $2.6 million from clients, and he allegedly siphoned almost $2 million for his personal spending.

The regulator said that Moore took the rest of the money and, in Ponzi scam-fashion, paid earlier clients with funds brought in by new clients. He is accused of sending out bogus account statements to clients, as well as sharing these statements with prospective clients. The California investment adviser purportedly lied about his educational background, employment history, as well as about how much Coast Capital managed in assets.
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Ex-Head of Chicago Investment Firm Gets 6-Year Sentence for $9M Ponzi Scam

Published on: July 31, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Neal Goyal, the former head of Caldera Investment Group and Blue Blue Horizon Asset Management, has been sentenced to six years behind bars for bilking over 40 investors of more than $9 million in a Ponzi scam. Prosecutors contend that over the eight years that the 34-year-old ran the scam, pretending to be a hedge fund manager, he made just limited trades and on only some of the funds. The majority of his victims were family and friends from his Hindu community.

Goyal told investors that the four private funds he managed would employ a long-short trading strategy. Instead, he ran a Ponzi scam, paying off earlier investors with new investors’ money.

He would go on to use over $2 million of their funds on his lavish lifestyle, including a $1.5 million home, luxury car leases, travel, and expensive dinners. He also put some of the money into his wife’s business ventures and his father-in-law’s failing tavern. He took his company staff on an all-expenses-paid vacation to the Dominican Republic. The group trip included a yacht and butler service at a five-star resort.
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U.S. DOJ Wants Supreme Court To Review Major Insider Trading Ruling that Reversed the Convictions of Hedge Fund Managers

Published on: July 31, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Justice Department wants the Supreme Court to review the ruling in United States v. Newman that overturned the convictions of hedge fund managers Todd Newman and Anthony Chiasson. The defendants were accused of trading on secondhand information they received regarding earnings announcements for Nvidia and Dell. The information was not public at the time.

The two men denied the charges, which accused them of involvement in a scheme that made over $70 million from illegally trading technical stock. Chiasson and Newman were convicted of fraud and conspiracy in 2012.

Last year, the United States Court of Appeals for the Second Circuit threw out the convictions. The court found that the government failed to prove that the tipper had benefited from the alleged scam.

Neither Chiasson nor Newman ever directly interacted with the employees that were the source of the purported tips, which were then passed on to others. The Second Court said that it reversed the convictions because the jurors who ruled on the case were not told that they had to find that the two men knew that the tippers had benefited in return for disclosing the confidential information.

Cetera Shutters J.P. Turner, Claims Move Is Not Part of Broader Firm Consolidation

Published on: July 30, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Cetera Financial Group is shutting down one of its brokerage firms, J.P. Turner & Co., shortly after its purchase. Larry Roth, the independent financial network’s CEO, told InvestmentNews that the move is not part of a broader consolidation involving its different firms.

About half of J.P. Turner’s 300 investment advisers have been invited to work at Summit Brokerage Services Inc., which is also owned by Cetera. Roth has indicated the reason for the closing of J.P. Turner is so its advisers can more swiftly access the complete spectrum of support and services offered by Cetera’s network through business-to-business provider Pershing, LLC. J.P. Turner had worked with a different clearing firm as, reportedly, Pershing had refused to do business with J.P. Turner because of their checkered past.

According to Securities Lawyer and Shepherd Smith Edwards Partner Sam Edwards, “It is not surprising Pershing did not want to clear trades for J.P . Turner as the firm has long had a reputation among those in the industry, and especially attorneys representing customers, as one willing to take on brokers and allow trading that other firms would not permit. This has resulted in our firm representing many J.P. Turner clients over the years and those cases have been among some of the more egregious we have seen.”
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Britain’s FCA Bans Ex-Rabobank Trader Over Libor Rigging

Published on: July 30, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Britain’s Financial Conduct Authority is banning former Rabobank trader Lee Stewart from the securities industry. Stewart pled guilty to conspiracy to commit wire fraud and bank fraud related to Libor rigging in the United States earlier this year.

The British regulator said that the bar is for a lack of “honesty and integrity.” The FCA said that Stewart took part in the “criminal conspiracy” to manipulate the benchmark rate over an extended period and engaged in “deliberate misconduct.”

The former Rabobank senior derivatives trader admitted to misconduct involving the Dutch lender’s submission of the London interbank offered rate as it was tied to the dollar. Stewart acknowledged that the rigging scam went on for almost five years, from May 2006 to early 2011.

He is one of three ex-employees at the bank to admit wrongdoing involving Libor manipulation. Seven Rabobank employees were charged in the U.S. for the alleged crimes.

FINRA Orders Morgan Stanley to Pay $2.4M Over Ex-Broker’s Trades, Bars Former Merrill Lynch Trader from the Industry

Published on: July 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority panel arbitration panel says that Morgan Stanley (MS) must pay at least $2.4M to settle the latest client claims accusing its former broker, Steven Mark Wyatt, of mishandling their investments. The brokerage firm fired Wyatt in 2012.

According to a group of doctors and their loved ones, Wyatt, who was their broker, made unauthorized and excessive trades in the stock market that cost them during and after the 2008 financial crisis. Wyatt bought thinly-traded stocks for the investors and placed speculative bets on exchange-traded funds and other securities in their portfolios.

This is the latest batch of claims against Wyatt, Morgan Stanley, and managers at the Mississippi branch where he worked. The claimants believe that Morgan Stanley failed to detect warning signs of Wyatt’s purported wrongdoing. Other employees named in this securities case are adviser Hilary Zimmerman, currently a Morgan Stanley senior vice president, and branch manager Fred Eugene Brister III. The claimants contend that Brister failed to properly supervise Zimmerman and Wyatt. They say that their accounts were mismanaged and suspect trading occurred.

UBS Warns Investors to Stay Away from Puerto Rico Bond Funds

Published on: July 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

In a complete turnaround, UBS AG (UBS) is now telling clients to step away from Puerto Rico bond funds. Reuters reports that in a recent letter, the firm’s Puerto Rico arm told clients that they would be contacted shortly regarding alternative investments.

Reasons cited for the warning is that the funds can no longer be used as loan collateral in the wake of the U.S. territory’s financial woes. Puerto Rico is currently $72 billion in debt. Concerns over its economy were not eased when Governor Alejandro García Padilla recently asked the island’s debt holders for help in postponing bond payments and restructuring the Commonwealth’s debt.

Reuters also reported that in the letter to UBS customers – issued on July 13 – UBS said the firm would lower the collateral value given to every Puerto Rico closed-end fund share to zero. However, noted the news agency, despite the declaration of zero value for the funds’ shares, the brokerage firm continues to list share prices on its website.

UBS Puerto Rico’s decision to reject the funds as collateral shows just how high risk the firm now views these investments. According to Sam Edwards, a partner in Shepherd, Smith, Edwards & Kantas, who is currently representing dozens of Puerto Rico investors, “UBS came up with the scheme to use the Closed-End Funds as collateral for loans from UBS Bank since they were not eligible for margin loans. It was that leverage against already internally leveraged losses that causes some of the worst losses on the island. UBS is now pulling the plug on its own plan and effectively admitting this was a faulty idea and not only too risky for investors, but now, too risky for UBS, who designed the plan in the first place.”

Once again, the evidence appears to support that UBS is protecting itself at the expense of its customers.
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